Last week (7/17-7/21), the US stock market showed mixed performance, with the S&P 500 index gaining 0.7% and the Dow Jones Industrial Average rising 2.1%. However, the Nasdaq 100 index experienced a decline of 0.9%. In contrast, European stocks generally rose, as indicated by a 1.0% increase in the STOXX 600 index. Among them, the UK's FTSE 100 index outperformed, surging by 3.1%.

【Source: MacroMicro  Date2023/7/17-2023/7/21】

【Source: MacroMicro   Date2023/1/1-2023/7/21】

On July 18, the US Department of Commerce released data indicating that retail sales in the US increased by 0.2% month-on-month in June, falling short of market expectations of 0.5%, with a year-on-year decline of 0.5 percentage points to 1.5%. Excluding automobiles and gasoline, the core retail sales increased by 0.3% month-on-month, in line with market expectations, while the year-on-year growth rate slightly dropped to 3.9%.

【Source：MacroMicro ；US retail sales growth rate experiences slight decline】

A slowdown in retail sales generally signifies a decrease in consumer demand, signaling an economic cooling in the US. However, despite this, the month-on-month deceleration in retail sales, when excluding automobiles, gasoline, building materials, and food services, accelerated to 0.6% in June, indicating resilient consumer demand during that month.

According to the latest survey by Bloomberg, the majority of economists are readjusting their recession forecasts. They have raised their expectations for third-quarter GDP growth in the US from zero to 0.5%, while slightly lowering their PCE inflation expectations for the second to fourth quarters of this year.

Mitrade Analyst：

Due to fiscal stimulus during the pandemic, household incomes in the United States have significantly increased. People are still using these savings to support their consumption expenditure, which is one of the main reasons for the resilience of the US economy. However, as excess savings are being depleted, the outlook for US consumption is uncertain.

Currently, the expectation of a soft landing for the US economy has been fully priced into stock market valuations, and some segments of the market may even be pricing in expectations of no landing. Such expectations may be overly optimistic.

This week, tech giants such as Microsoft, Google, and Meta are set to announce their financial reports. As influential players in fields like artificial intelligence, cloud computing, and digital advertising, their performance will impact market expectations going forward.

Currently, the market generally expects Microsoft's adjusted operating profit margin to increase from 40% to 42%. After experiencing four consecutive quarters of decline, Google is projected to achieve a 9% profit growth this quarter, with its core search business sales potentially increasing by 4%. Meta is anticipated to resume growth in the second quarter, with an expected 19% growth in earnings per share.

In this earnings report, guidance from these tech giants, particularly regarding expenditures, will be crucial. If the market doesn't see meaningful revenue generation from these giants for a considerable period, AI concept stocks may experience a general cooling-off period.

【Source：MacroMicro ；NASDAQ 100 Index Valuation Reaches High Levels】

Mitrade Analyst：

Due to the AI boom, the Nasdaq 100 index has surged over 40% this year, positioning the market at the forefront of pricing the monetization capabilities of AI. However, if tech giants' financial reports fall below expectations, a pullback in the Nasdaq 100 index can be expected. Considering the current valuation of Nasdaq 100 approaching 30, which is relatively high, it is advisable for investors to exercise caution before making investment decisions.

The Federal Reserve will hold a monetary policy meeting on July 25-26. The market has already priced in the expectation of a 25 basis point interest rate hike by the Federal Reserve, raising the policy rate from the current 5-5.25% range to 5.25%-5.5%, reaching the highest level in 22 years, while maintaining a tightening bias.

Former Fed Chair Ben Bernanke stated last week that July might be the final rate hike of this cycle. "It seems quite clear that the Fed will raise rates by another 25 basis points at the next meeting. The rate hike in July could be the last one."

However, some Fed officials remain steadfast in their view that the fight against inflation is far from over and are open to further rate hikes later this year. This is particularly true considering they were previously blindsided by the slowdown in price pressures, only to see them rebound subsequently.

According to the CME FedWatch Tool, the probability of no rate hikes in the remaining three monetary policy meetings this year exceeds 60%, while the likelihood of a rate cut in March next year approaches 40%.

【Source：CME】

Mitrade Analyst：

Although CPI has entered a downward trend, core PCE remains stubbornly high, which will support the Federal Reserve in maintaining a hawkish stance. The possibility of another interest rate hike in the months of September to December largely depends on the trajectory of core inflation. Attention is focused on the release of the US June PCE price index this Friday. If it decreases as expected, it will further reduce expectations of a second rate hike.